Cutting federal spending now will only compound our problems

The U.S. today has both historically low interest rates and large reserves of ready cash for investment by business. The interest rates and ready cash means businesses already have the maximum incentive to invest in new production that our financial system can provide; their cost of borrowing money will never be lower than it is right now.

In spite of this, U.S. businesses are still not investing in new production enough to spur hiring. American businesses fail to invest because they know their market is shrinking. Given the government's present conservative policy barriers to wage increases, the American middle class is destined to keep shrinking, and U.S. businesses know it.

In fact, they're literally banking on it, keeping their record high cash-on-hand in banks -- so much so that some banks are abandoning the practice of paying interest on deposits and instead are charging their corporate customers to park cash in their banks. This is unheard of.

The main source of demand for U.S. goods comes from American middle- and working-class consumers. These consumers suffered the largest tax increase in history under Ronald Reagan in 1982 when the FICA or payroll tax was increased.

This tax increase was sold by conservatives to the American public as being necessary to secure Social Security and Medicare when the Baby Boomers retired. In reality, the proceeds were used to partially cover the drop in federal revenues when Reagan and conservatives of both parties dramatically cut taxes on wealthy individuals and corporations.

In effect, conservatives in the 1980s engineered a massive shift in the tax burden from corporations and the wealthy to U.S. consumers, and we have been living with the results ever since.

While President Obama's cuts in payroll taxes were among the best actions of his first administration, just a couple years of cuts cannot undo the damage done to consumers over several decades, even though the earlier cuts were just rescinded in January.

To put this tax burden shift into context, corporations contributed about 33% of all federal taxes in the late 1960s. Today they contribute just 9 percent of federal revenues. By contrast, payroll taxes contributed 8 percent of federal revenues in 1968, but today they are 35 percent of all federal revenue.

When you read editorials proposing spending cuts proposed by members of Fix the Debt, remember the board of that organization is composed of lobbyists, and that corporate CEOs have paid them dearly to keep corporate taxes at their current, unjustifiably low levels.

Another feature of the U.S. economy -- again one of conservative design -- is that the U.S. imports more than it exports. While cheap imports do reduce inflation, particularly by keeping wages low, the overall effect is to keep wages so low that demand is diminished for our own goods and services.

As a result, middle-class Americans faced with soaring payroll taxes, rising costs for education, housing and health care, and with no prospects for increasing wages or job security increasingly are falling into the ranks of the poor and the barely-getting by. If you were running a business and knew you'd need higher incomes going to your barely-getting by customers in order to fund expanded hiring, you wouldn't be hiring, either.

For lawmakers in Congress to propose reducing federal spending under these conditions is beyond ridiculous. Enacting such a plan is mathematically guaranteed to reduce the size of the U.S. economy and leave us with even higher deficits than we have now.

This has happened already to the economies of Great Britain and Ireland as well as everywhere else today's austerity insanity has taken hold. The proposals of conservative Republicans and corporate lobbyists to cut government spending must result in a reduction in demand, and the greater the cuts, the greater the economic damage will be.

Now is hardly the time to cut government spending, even if that means corporations and the wealthy must pay more in taxes. They can afford it. More importantly, they're the only ones who can.

With the proposed omnibus spending bill, U.S. Sen. Barbara A. Mikulski has provided the leadership that demonstrates how Congress is supposed to work ("Bill keeps government open, gives millions to Md.," Jan. 14).

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